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Informist, Wednesday, Mar. 5, 2025

MUMBAI – Government bond prices will likely open higher Thursday after the Reserve Bank of India post market hours announced open market operation auctions to buy gilts amounting to INR 1 trillion in two tranches this month, dealers said.

The RBI will conduct two auctions worth INR 500 billion each on Mar. 12 and Mar. 18 to buy government bonds, the details of which will be notified separately, it said. The central bank also announced another $10 billion dollar/rupee buy/sell swap auction on Mar. 24 as part of its liquidity managing measures ahead of large tax outflows and other banking system liquidity drains scheduled in March. With the RBI's proactive announcement of liquidity infusion, traders may also increase the size of their bets on another repo rate cut in April.

Gilts and swaps may also take cues from the overnight moment of US Treasury yields after the S&P US services Purchasing Managers' Index for February is released at 2130 IST, dealers said. Market participants will also assess any statements made by President Donald Trump on tariffs and their potential impact on global trade.

A possible global trade war following Trump's imposition of tariffs could fuel a rise in inflation and cause central banks across the globe to refrain from cutting rates. On the other hand, the impact of these policies on growth could also conceivably increase the pressure on these banks to cut rates further. The actions of the US Federal Reserve may become crucial as Canada, Mexico, and China are the top trading partners of the US, which means tariffs on these three countries will immediately impact prices in the world's largest economy.

Crude oil prices could also be a trigger for gilt swaps if they move significantly, dealers said. During the day, traders may also monitor the movement of the Indian rupee against the dollar, after it settled at a one-week high of 86.9550 a dollar on Wednesday, dealers said. 

On Thursday, the one-day call rate may open around the repo rate amid demand for funds from banks. During the day, the call rate is seen in a range of 5.75-6.40% and the triparty repo rate is seen in the range of 5.75-6.25%.

GOVERNMENT BONDS

On Thursday, gilt prices will likely open higher after the RBI announced OMO auction to ease liquidity conditions, dealers said.

Gilt prices may also take cues from the overnight movement of US yields after the S&P US services Purchasing Managers' Index for February is released at 2130 IST, dealers said. Market participants will also closely track and assess any developments related to the US tariff policy.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.75% during the day. On Wednesday, the bond settled at INR 100.56, or 6.71% yield. 

OIS RATES

On Thursday, swap rates may take cues from the overnight movement in US Treasury yields at opening after the release of thw S&P US Services Purchasing Managers' Index for February, dealers said. Swap rates may also track the movement of government bond yields during the day after the RBI announced additional measures to ease liquidiy conditions.

Short-term swaps may fall more during the day due to the RBI's liquidity measures and tracking the movement in overnight MIBOR--the floating leg of the OIS contract. The overnight MIBOR Wednesday was set at 6.29%, the lowest since February 2023.

The one-year swap rate is seen at 6.16-6.26% and the five-year rate is seen at 5.90-6.04%. On Wednesday, the one-year swap rate ended at 6.21% and the five-year swap rate closed at 5.95%.

CALL

On Thursday, the one-day call rate may open around the repo rate due to likely demand for funds from banks. During the day, the call rate is seen in a range of 5.75-6.40% and the triparty repo rate is seen in the range of 5.75-6.25%. On Wednesday, the one-day call rate ended at 5.95%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 250 billion 1000-1030 IST 

LIQUIDITY

--Total net outflows of INR 49.43 billion. The calculation of flows does not take into account the redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.

* Inflows

--INR 1.67 trillion on redemption of 91-day Treasury bills

--INR 66.00 billion on redemption of 182-day T-bills

--INR 91.72 billion on redemption of 364-day T-bills

--INR 31.10 billion as coupon on 6.97%, 2026 gilt

--INR 18.54 billion as coupon on state bonds

* Outflows
--INR 216.00 billion on payment for 91-day T-bills

--INR 137.00 billion on payment for 182-day T-bills

--INR 71.16 billion on payment for 364-day T-bills

--INR 50.89 billion as reversal of overnight variable rate repo tender

End

US$1 = INR 86.96

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Srijita Bose

Edited by Tanima Banerjee

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